ExxonMobil backs Palin pipeline plan

Alaska's three big oil and gas companies are now all involved in pipeline projects

Posted: Friday, June 12, 2009

By PAT FORGEY

After fighting Alaska's natural gas pipeline plans for two years, ExxonMobil Corp. joined the state-sponsored pipeline effort Thursday, handing Gov. Sarah Palin another victory in her efforts to develop the state's huge natural gas reserves.

ExxonMobil is North America's largest oil company, and the development aligns it with TransCanada, the continent's largest pipeline company.

"We very much appreciate the leadership demonstrated by the governor, the commissioners and the Legislature to advance this very important project," said Marty Massey, U.S. joint interest manager for ExxonMobil, the nation's largest oil company.

The company declined to say why it had changed its long-standing opposition to participating in Palin's pipeline plans, or how big its stake in the $30 billion project would be.

The Republican governor, with the backing of the Legislature, introduced and passed the Alaska Gasline Inducement Act over the objections of Exxon and the state's other big oil companies in 2007.

Palin's plan was aimed at jump-starting pipeline negotiations after the Legislature balked at approving former Gov. Frank Murkowski's plan to encourage construction of the pipeline with tax breaks.

Palin and many legislators said Murkowski's deal was not good for the state, for a variety of reasons including its constitutionality, the value of the tax breaks and control of the gas reserves.

The Palin administration then selected TransCanada Corp. to build the pipeline under the act, a decision which was confirmed by the Legislature last summer after spending two months reviewing the deal in special session.

Top legislative leaders allied with the oil industry opposed TransCanada, though a coalition of Democrats and minority Republicans backed Palin and approved the deal.

Therriault called the deal between ExxonMobil and TransCanada "very positive for Alaska and for the country."

Kerttula said it was important to have one of the North Slope gas leaseholders on board with the project, but remains cautious about doing business with Exxon.

Exxon has fought numerous battles with the state over the years. State officials say they've overcharged the state on the trans-Alaska oil pipeline, failed to meet lease obligations in the Point Thomson gas field and were negligent operating the Exxon Valdez oil tanker in Prince William Sound.

"This combination of our two companies brings unrivaled experience and expertise to the project," he said.

Executives of the two companies and state officials Thursday provided only limited information about what Exxon's involvement in the project would mean. They refused to say even how large its investment in the project would be, though both said TransCanada would remain the majority partner.

The deal has been under review by state officials for weeks, and has been approved by the state's Gasline Team, said Marty Rutherford, deputy director of the Alaska Department of Natural Resources and head of the team.

Two other oil companies with large natural gas holdings on Alaska's North Slope, ConocoPhillips Co. and BP PLC, are developing their own pipeline called Denali in competition with Palin's AGIA effort.

Exxon's Massey last year told the Legislature that Denali was not financially viable, and gave no indication the company would join the TransCanada effort.

None of the big three Alaska oil companies had submitted a pipeline development proposal under AGIA, but now all three are advancing pipeline projects.

Exxon's participation with TransCanada suggests the company will commit its gas to the TransCanada pipeline when the company solicits customers in a process known as "open season" next summer.

Palmer said the addition of Exxon to the deal would boost early spending on the project from $83 million through the open season to $150 million, but is still projecting construction beginning by 2014 and completion by 2018.

By joining the TransCanada pipeline, Exxon will be eligible to receive some of a $500 million state reimbursement to develop the pipeline. It will also be bound by AGIA requirements that the pipeline be operated as an independent, non-producer controlled, pipeline, which Palin and her legislative allies said is crucial to Alaska getting fair value for its gas.

"My major concern is how do we keep an independent pipeline, and what does Exxon get for its participation," Kerttula said.

The AGIA process includes several requirements which Massey said will now bind Exxon. Those requirements, aimed at promoting development on the North Slope and getting a better deal for the state, were considered so onerous by ConocoPhillips and BP, they opted not to pursue the $500 million and began to develop their own pipeline.

Exxon getting on board with AGIA is something Sen. Tom Wagoner, R-Kenai, said he expected to happen eventually.

"Throughout this process we always predicted that TransCanada and the companies would come together and negotiate an agreement," he said.

Two legislative committees, the House Resources and Energy Committees, announced they'd begin joint hearings on the deal Monday. The state's Congressional delegation all praised Exxon's decision to join with TransCanada.

However, former Gov. Wally Hickel, a former Palin ally, denounced it in a press release. He prefers the state to build its own pipeline.

"I have urged the governor many times to lead our state in another direction," Hickel said. "We should build and own a natural gas pipeline from Prudhoe Bay to Valdez and ship liquefied natural gas (LNG) to world markets."